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Chapter 3: Entrepreneurship, New Ventures, and Business Ownership

1 Copyright © 2017 Pearson Education, Inc. Business Essentials, 11e (Ebert/Griffin) Chapter 3 Entrepreneurship, New Ventures, and Business Ownership 1) Which entity is defined as independent and has little influence on its market? A) Corporation B) Joint venture C) Small business D) Partnership E) Government agency Difficulty: Easy AACSB: Application of knowledge Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 2) The U.S. Department of Commerce considers a business "small" if it has fewer than how many employees? A) 10 B) 50 C) 100 D) 500 E) 1,500 Difficulty: Easy AACSB: Application of knowledge Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 3) Which of the following industry groups is the fastest growing segment of small business enterprise? A) Manufacturing B) Wholesaling C) Retailing D) Transportation E) Services Difficulty: Moderate AACSB: Application of knowledge Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 2 Copyright © 2017 Pearson Education, Inc. 4) Which of the following types of venue is favored by small-business retailers? A) Superstore B) Catalog showroom C) Specialty shop D) Department store E) Studio workroom Difficulty: Moderate AACSB: Application of knowledge Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 5) Why is it difficult to compare relative job growth for different-sized businesses? A) Sourcing up-to-date employment figures is difficult. B) Many small businesses experience rapid unreported growth. C) Spheres of influence overlap between the small and big business sectors. D) Staff size of small businesses tends to change faster than staff size of big businesses. E) It is hard to determine the cutoff point at which a small business becomes a large business. AACSB: Analytical thinking Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 6) Why do attitudes about entrepreneurship vary internationally? A) Decision making in big business can overlook local customs. B) Attitudes towards risk-taking in business are culturally determined. C) Consumer attitudes are influenced by economic cycles. D) Foreign-owned companies can be unresponsive to local markets. E) International business is creating a global village. AACSB: Diverse and multicultural work environments Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 3 Copyright © 2017 Pearson Education, Inc. 7) When an investor is not interested in owning their own business, why do they need to understand entrepreneurship? A) To understand why someone would want to work so hard for a small return B) To determine the key characteristics of success C) To understand how to convert a great idea to a profitable idea D) To assess the market potential for up-and-coming businesses E) To learn how to set up a business plan AACSB: Analytical thinking Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 8) In a small business, who determines prices for wholesalers and customers? A) Customers B) Franchise owners C) Market forces D) Small business administration E) Small business owner AACSB: Reflective thinking Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 9) Small businesses impact key aspects of the U.S. economy including A) bank loans, and contributions to big business. B) international trade and the service industry. C) bank loans and innovation. D) the service industry and job creation. E) job creation and innovation. AACSB: Analytical thinking Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 4 Copyright © 2017 Pearson Education, Inc. 10) The Small Business Administration is the government agency charged with owning small businesses. AACSB: Application of knowledge Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 11) Small businesses produce more patents per employee than large patenting firms. Small businesses are an important source of innovation as evidenced by the production of patents. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 12) Most businesses in the United States are large businesses with more than 500 employees. ALSE More than 89 percent of all U.S. businesses have no more than 20 employees. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 13) Major innovations are most likely to come from large corporations. ALSE Most major innovations come from small businesses. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 14) The Small Business Administration (SBA) may consider a business with many employees to be small as long as it has low annual revenues. A government agency that assists small businesses, the SBA regards some companies with as many as 1,500 employees as small, but only if the business has relatively low annual revenues. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 5 Copyright © 2017 Pearson Education, Inc. 15) How is the U.S. economy affected by small businesses? Difficulty: Difficult AACSB: Analytical thinking Objective: 3.1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. 16) Which of the follow BEST defines those who assume the risk of business ownership? A) Entrepreneurs B) Customers C) Corporate partners D) The Small Business Administration E) Banks AACSB: Application of knowledge Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities. 17) What is the process of seeking business opportunities under conditions of risk? A) Investment B) Entrepreneurship C) Leadership D) Diversification E) Growth Difficulty: Moderate AACSB: Application of knowledge Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities. 6 Copyright © 2017 Pearson Education, Inc. 18) What term is most closely associated with the pursuit of entrepreneurship with the goal of independence from working for someone else with a reasonable degree of financial security? A) Vision B) New ventures C) Small business D) Start-ups E) Dominance Difficulty: Difficult AACSB: Application of knowledge Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities. 19) When an entrepreneur has the goals of growth and expansion, with the vision of turning the business into a large business, what term is used when referring to the business? A) Visionary B) Small Business C) Diversification D) Start-up E) Expansionist AACSB: Application of knowledge Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities. 20) People who assume the risk of business ownership with a primary goal of growth and expansion are called entrepreneurs. AACSB: Application of knowledge Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities. 7 Copyright © 2017 Pearson Education, Inc. 21) Most successful entrepreneurs have a strong desire to be their own bosses. AACSB: Application of knowledge Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities. 22) Why might an entrepreneur wish to purchase an existing business rather than start one from scratch? AACSB: Reflective thinking Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities. 23) What are the advantages and disadvantages for a franchisee? AACSB: Reflective thinking Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities. 8 Copyright © 2017 Pearson Education, Inc. 24) Explain entrepreneurship and describe key entrepreneurial characteristics. Difficulty: Easy AACSB: Reflective thinking Objective: 3.2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities. 25) What does an entrepreneur use to summarize his or her business strategy for a proposed new venture? A) Success chart B) Director's guideline C) Financial blueprint D) Business plan E) Balance sheet AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 26) What is considered to be a significant disadvantage of owning a franchise? A) Start-up costs B) Operational guidelines C) Difficulty obtaining loans D) Double taxation E) Competition AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 9 Copyright © 2017 Pearson Education, Inc. 27) What is the MOST important source of money for new business start-ups? A) Banks B) The SBA C) Personal resources D) Government grants E) Venture capital C) Most individuals starting a new business have to rely on personal finances to do so. Difficulty: Easy AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 28) Who constitutes the membership of SCORE? A) Retired executives B) Venture capitalists C) Company officers D) Commercial lenders E) Successful entrepreneurs A) The Service Corps of Retired Executives is made up of retired executives who volunteer to help entrepreneurs start new businesses. Difficulty: Easy AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 29) What does a start-up company need in order to estimate the required size of a plant, store, or office, inventory levels, and size of staff? A) Sales forecast B) Tax estimate C) Business objective D) Stock options E) Funding source AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 10 Copyright © 2017 Pearson Education, Inc. 30) What is the major drawback of accepting venture capital? A) Sharing company control B) Having to pay high interest rates C) Limiting expansion D) Facing a short repayment period E) Having to write proposals AACSB: Reflective thinking Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 31) Which of the following are groups of small investors seeking to make profits on companies with rapid growth potential? A) Community banks B) Venture capital companies C) Equity managers D) Government securities dealers E) Stock brokers B) Most venture capital companies do not lend money, instead, they supply capital in return for partial ownership or representation on boards of directors. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 32) Which of the following is federally licensed to borrow money from the Small Business Administration to invest in or lend to small businesses? A) SCORE B) SBICs C) SBDC D) FDIC E) SEC AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 11 Copyright © 2017 Pearson Education, Inc. 33) What is the MOST effective way for an entrepreneur to become a competent manager? A) Working alone B) Relying on luck C) Getting a college degree D) Being open to opportunities E) Working for a successful company first AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 34) Which of the following helps entrepreneurs gain skills that are essential for running a business? A) ESOP B) SBICs C) SEC D) LLC E) SBA AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 35) Which distinctive competency must an entrepreneur identify when attempting to enter an established market? A) The ability to identify new markets B) The ability to identify niche markets C) The ability to differentiate themselves from others in the market D) The ability to gauge prices to get the highest return without driving away customers E) The ability to move quickly to take advantage of new opportunities AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 12 Copyright © 2017 Pearson Education, Inc. 36) What is first mover advantage? A) The concept that the first in the market will make the most money B) The concept that a firm who exploits an opportunity before others has an advantage C) The concept that there is an advantage in leaving a market when it becomes flooded D) The concept that large organizations cannot take advantage of an opportunity as quickly as an entrepreneur E) The concept that there is more risk being first, but also more reward, if successful Difficulty: Moderate AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 37) What is the first step in becoming an entrepreneur? A) Deciding to proceed B) Formulating a business plan C) Identifying distinctive competencies D) Searching for capital to invest E) Implementing plans and opening Difficulty: Moderate AACSB: Reflective thinking Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 38) Which key element of a business plan will determine inventory, size of space required, and number of employees needed? A) Financial planning B) Comparing existing businesses C) Sales forecasting D) Setting goals and objectives E) Identifying strategies and how to implement them AACSB: Reflective thinking Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 13 Copyright © 2017 Pearson Education, Inc. 39) What is the advantage to starting a business from scratch instead of buying an existing business? A) There is a proven ability to attract customers. B) Profit is generated sooner. C) There is a stronger relationship with lenders and other stakeholders. D) There are no ill-effects from the previous owner. E) There is a clearer picture of what to expect in terms of start-up. Difficulty: Moderate AACSB: Analytical thinking Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 40) Where can a new business owner go to seek help and learn from other institutions and disciplines? A) The Service Corps of Retired Executives (SCORE) B) The Small Business Development Center (SBDC) C) Small business investment companies (SBICs) D) Venture capitalist E) Minority Enterprise Small Business Investment Companies (MESBICs) Difficulty: Easy AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 41) A business plan demonstrates how an entrepreneur's business strategy will be implemented. A business plan documents business strategy and implementation procedures. Difficulty: Easy AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 14 Copyright © 2017 Pearson Education, Inc. 42) Franchisees may be obligated to contribute a percentage of sales to parent corporations. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 43) Loans are the most important sources of money for new businesses. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 44) Lending institutions are more likely to help finance the purchase of an existing business rather than the start-up of a business from scratch. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 45) A group of small investors who invest money in companies in return for partial ownership is known as a small-business development company. AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 46) Small-business investment companies (SBICs) may be sponsored by the federal government. AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 15 Copyright © 2017 Pearson Education, Inc. 47) The number of minority-owned businesses has decreased in recent years. Difficulty: Easy AACSB: Diverse and multicultural work environments Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 48) The Small Business Development Center provides micro loan programs for members. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 49) Discuss four sources of financing for starting up a small business. Difficulty: Difficult AACSB: Application of knowledge Objective: 3.3: Describe distinctive competence, the business plan, and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. 16 Copyright © 2017 Pearson Education, Inc. 50) Which of the following represents the fastest-growing segment of minority business ownership? A) African Americans B) Asians C) Hispanics D) Pacific Islanders E) Europeans A) The number of businesses owned by African Americans increased by 60 percent during the most recent five-year period for which data is available. Difficulty: Easy AACSB: Diverse and multicultural work environments Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses. 51) Which of the following is the MOST significant recent trend in small-business start-ups? A) Entrepreneurs who cross over from big business B) Increased opportunities for minorities C) Increased opportunities for women D) Emergence of e-commerce E) Global economic downturn D) Because the Internet provides fundamentally new ways of doing business, entrepreneurs have created and expanded new businesses faster than ever before. Difficulty: Moderate AACSB: Diverse and multicultural work environments Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses. 52) What is the main reason why women start new businesses? A) Need to earn more money B) Preference for working alone C) Opportunities for family members D) Control in organizing their time E) Desire to employ other women D) Some 46 percent of woman cite being able to gain control over their schedule as the reason why they are attracted to starting their own businesses. Difficulty: Difficult AACSB: Diverse and multicultural work environments Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses. 17 Copyright © 2017 Pearson Education, Inc. 53) Which of the following factors MOST contributes to small business failure? A) Managerial incompetence or inexperience B) Bad product design C) Legal problems D) Time spent raising capital E) Personnel issues A) The four main reasons for small business failure are managerial incompetence, neglect, weak control systems, and insufficient capital. Difficulty: Moderate AACSB: Diverse and multicultural work environments Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses. 54) A new business should have enough capital to operate at least how many months without earning a profit? A) 1 B) 2 C) 4 D) 6 E) 9 D) In addition, some experts recommend having enough capital to last one year. Difficulty: Moderate AACSB: Diverse and multicultural work environments Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses. 55) Many new businesses are started by people who have left big corporations. More and more businesses are being started by people who have left big corporations and who want to put their experience to work. Difficulty: Easy AACSB: Application of knowledge Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses. 56) The failure rate among small businesses has been increasing in recent years. ALSE The failure rate for small businesses has been decreasing in recent years. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses. 18 Copyright © 2017 Pearson Education, Inc. 57) Neglect is a major factor that contributes to small business failure. Other factors include managerial incompetence, inexperience, weak control systems, and insufficient capital. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses. 58) Which of the following types of businesses is MOST common in the United States? A) Sole proprietorships B) General partnerships C) Cooperatives D) Corporations E) Limited partnerships A) About 74 percent of all U.S. businesses are sole proprietorships. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 59) In which business sector are cooperatives still important? A) Manufacturing B) Automotive C) Public utilities D) Agriculture E) Health care D) Although cooperatives make up only a minor segment of the U.S. economy, the role of cooperatives is important in agriculture. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 19 Copyright © 2017 Pearson Education, Inc. 60) Which of the following legal forms of business is owned and usually operated by a person who is responsible for its debts? A) Cartel B) Corporation C) General partnership D) Sole proprietorship E) Limited partnership D) The sole proprietorship is owned and usually operated by one person. About 72 percent of all businesses are sole proprietorships; however, they account for only about 5 percent of total business revenues. Difficulty: Easy AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 61) What is a major drawback of sole proprietorships? A) Short-term focus of shareholders B) Work flexibility C) Low start-up costs D) Unlimited liability E) Structured hours D) A sole proprietor is responsible for all debts incurred by the business, which increases the risk involved in doing business. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 62) Which of the following will force a sole proprietorship to be legally dissolved? A) Sales exceed $1 million. B) The partners reorganize the firm's structure. C) Earnings are less than $500,000. D) The owner donates profits. E) The owner dies. E) Although the business can be reorganized by a successor, executors or heirs must otherwise sell its assets. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 20 Copyright © 2017 Pearson Education, Inc. 63) What resources does a sole proprietorship primarily depend on? A) The corporation B) Foreign investors C) Capital markets D) Those of the owner E) A committed clientele D) Therefore, sole proprietors often find it hard to borrow money to start up or expand and many bankers fear that they will not be able to recover loans if owners become disabled or insolvent. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 64) What type of business has two or more owners who share in the operation of the firm and are financially responsible for its debts? A) Corporation B) Partnership C) Cooperative D) Conglomerate E) Nonprofit B) Partners may invest equal or unequal sums of money and may earn profits that bear no relation to their investments. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 65) What is the MOST common type of partnership? A) Limited partnership B) Corporate partnership C) General partnership D) Sole partnership E) Cooperative partnership C) A general partnership is similar to a sole proprietorship but is owned by more than one person. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 21 Copyright © 2017 Pearson Education, Inc. 66) Who invests all of the funds needed for a business but plays no role in its management? A) Silent partner B) Sole proprietor C) General partner D) Principal E) Director A) A silent partner is a partner who invests all of the funds needed for a business and therefore gets a return on the investment if the business earns a profit, but plays no role in its management. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 67) What is the MOST important advantage of general partnerships? A) The unlimited liability of the partnership B) The ability to grow with the addition of new talent and money C) The ease of implementing an effective control system D) The increased role of luck E) The need for minority partners B) New partners can join a general partnership at any time by investing their time and money. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 68) What do both sole proprietorships and partnerships lack? A) Trust B) Legal standing C) Continuity D) Shared vision E) Adaptable processes AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 22 Copyright © 2017 Pearson Education, Inc. 69) Why are lenders most willing to loan to corporations? A) Continuity and legal status are assured. B) Links with owners and founders are established. C) Professional management teams can be changed. D) Commitment to expansion is readily available. E) Brand and marketing strategies can be diversified. Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 70) Which of the following is a partner who actively manages a firm and has unlimited liability for its debts? A) Limited partner B) General partner C) Stockholding partner D) Public partner E) Silent partner AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 71) The choice of legal ownership of a small business should be based on what? A) Goals of the entrepreneur B) Tax advantages C) Stakeholders needs D) Legal liability E) Ease of launch AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 23 Copyright © 2017 Pearson Education, Inc. 72) Which of the following is an advantage of sole proprietorships? A) Ease in attracting a silent partner. B) Sales and expenses are treated as part of personal finances. C) It is easier to borrow money. D) There is increased continuity. E) Bills are paid out of pocket. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 73) What type of partner invests all funds in the organization but plays no role in its management? A) Limited partnership B) General partner C) Silent partner D) Active partner E) Master limited partnership C) A silent partner invests all funds needed for the business but plays no role in its management or day to day operations. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 74) Which of the following describes an investor in a business who is liable for some of its debt, but has no active role in its operation? A) General partners B) Unlimited partners C) Master partners D) Limited partners E) Minority partners D) Limited partners invest money and are liable for debts only to the extent of their investments. They cannot, however, take active roles in business operations. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 24 Copyright © 2017 Pearson Education, Inc. 75) If a business owner needs money for expansion, but does not want to give up sole control over the business, what type of partnership would be best? A) General partnership B) Limited partnership C) Active partnership D) Master limited partnership E) Cooperatives Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 76) In what type of ownership is an owner liable for debt, but only based on how much they invested? A) Master limited partnership B) Cooperative C) Limited partnership D) Corporation E) General partnership AACSB: Analytical thinking Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 77) What type of partnership allows an organization to sell shares of the partnership to investors on a public market? A) General partnership B) Limited partnership C) Cooperative D) Master limited partnership E) Unlimited partnership Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 25 Copyright © 2017 Pearson Education, Inc. 78) When a business owner forms a master limited partnership, what responsibilities does the master partner have toward the minority partner(s)? A) The master partner must provide detailed operating and financial reports. B) The master partner must allow the partners a vote on all major business changes and transactions. C) The master partner must make all liabilities clear before the partnership is formed. D) The master partner must give up majority ownership. E) The master partner must allow the partners to take an active role in the business. A) The master partner retains at least 50 percent ownership and runs the business, and minority partners have no management voice. The master partner must regularly provide minority partners with detailed operating and financial reports. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 79) The least common type of partnership is the general partnership. ALSE The most common type of partnership is the general partnership. Difficulty: Easy AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 80) Low start-up costs and tax benefits are advantages of sole proprietorships. Sole proprietorships can vary widely in size; a sole proprietorship is merely defined as a business owned and operated by one person. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 81) By law, each general partner is liable for all debts incurred in the name of the partnership. Each general partner can be seen as a sole proprietor in terms of taxation and the repaying of debt. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 26 Copyright © 2017 Pearson Education, Inc. 82) Describe three disadvantages of operating a business as a sole proprietorship. Difficulty: Moderate AACSB: Reflective thinking Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 83) Discuss the advantages and disadvantages of partnerships. Difficulty: Moderate AACSB: Reflective thinking Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 84) Discuss why a business owner would form a limited partnership instead of a general partnership. Difficulty: Moderate AACSB: Reflective thinking Objective: 3.5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each. 27 Copyright © 2017 Pearson Education, Inc. 85) What type of corporation issues stock that is held by only a few people and not available to the public? A) Limited liability B) Subchapter S C) Public D) Closely held E) Professional D) A closely held, or private, corporation has stock owned only by a few people and not available to the public. Most smaller corporations fit this profile. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 86) Which form of business ownership generates the MOST sales in the United States? A) Sole proprietorship B) General partnership C) Cooperative D) Corporation E) Limited partnership Difficulty: Easy AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 87) Which type of business is legally considered a separate entity from its owners and is liable for its own debts? A) Sole proprietorship B) Corporation C) Limited partnership D) Cooperative E) General partnership B) A corporation is a business that is legally considered an entity separate from its owners and is liable for its own debts. The liability of the owners extends to the limits of their investments. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 28 Copyright © 2017 Pearson Education, Inc. 88) Who are the owners of a corporation? A) Board of directors B) Financial officers C) Stockholders D) Top managers E) Entrepreneurs C) Stockholders are the owners of shares of stock in a corporation and represent ownership of the corporation. Difficulty: Easy AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 89) To raise revenue, what can a business issue and sell to those wishing to own some of the organization? A) Bonds B) Profits C) Stocks D) Dividends E) Loans AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 90) What type of company has stock that is widely held and available for sale to the general public? A) Private corporation B) Public corporation C) General partnership D) Limited liability corporation E) Professional corporation AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 29 Copyright © 2017 Pearson Education, Inc. 91) What type of corporations are those comprised of doctors, lawyers, or accountants MOST likely to be? A) Private B) Public C) Subchapter S D) Professional E) Multinational AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 92) Which of the following occurs when two firms combine to create a new company? A) Acquisition B) Takeover C) Venture D) Divestiture E) Merger Difficulty: Easy AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 93) When income is taxed at the corporate level and on shareholder returns as dividends, what is this situation known as? A) Dual costs B) Double taxation C) Regulatory costs D) Double ownership E) Financial balancing AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 30 Copyright © 2017 Pearson Education, Inc. 94) What is the biggest advantage of incorporating? A) Limited liability B) Increased profits C) Tax advantage D) Increased talent pool E) Limited tender offers AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 95) What is the term for the profits that are distributed to all owners of a corporation? A) Tender B) Interests C) ESOP D) Dividends E) Yield Difficulty: Moderate AACSB: Reflective thinking Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 96) What type of ownership is created when a firm buys another outright? A) Merger B) Acquisition C) Spin-off D) Divestiture E) Institutional Difficulty: Moderate AACSB: Analytical thinking Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 31 Copyright © 2017 Pearson Education, Inc. 97) Who is responsible for the day-to-day management and overall performance of an organization? A) Officers B) President C) Chief Executive Officer D) Board of Directors E) Vice President AACSB: Analytical thinking Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 98) Which of the following occurs when an organization sells part of a business or operation to another corporation? A) Merger B) Acquisition C) Divestiture D) Buy out E) Spin off C) A divestiture occurs when a corporation sells a business operation to another corporation; with a spin-off, it creates a new operation. Difficulty: Easy AACSB: Analytical thinking Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 32 Copyright © 2017 Pearson Education, Inc. 99) Why would an organization divest some of its existing business operations? A) To focus more on its core business B) To create new partnerships C) Because the divested business is more valuable as a separate company D) To buy another firm outright E) To create a new company from several smaller ones Difficulty: Moderate AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 100) What is formed when a corporation establishes a trust on behalf of employees for the purpose of buying shares of ownership? A) Institutional ownership B) Divestiture C) Strategic alliance D) Corporate governance E) Employee stock ownership plan (ESOP) AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 33 Copyright © 2017 Pearson Education, Inc. 101) In order to exert influence on corporate managers, groups can pool resources to buy huge blocks of stock. These groups are known as A) spin offs. B) ESOPS. C) joint ventures. D) institutional investors. E) strategic alliances. AACSB: Analytical thinking Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 102) Most institutional investors are large investors, who purchase shares of an organization through A) employee stock ownership plans. B) spin offs. C) strategic alliances. D) joint ventures. E) mutual funds. AACSB: Analytical thinking Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 34 Copyright © 2017 Pearson Education, Inc. 103) How can competing firms collaborate on a new business without losing control of their existing firm? A) Establish a joint venture B) Buy large blocks of the competitor's stock C) Hire a new chief executive office D) Sell off similar operations E) Change the corporate governance of both firms AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 104) Which type of corporation spans national boundaries and is subject to regulation in multiple countries? A) Publicly held B) Limited liability C) Subchapter S D) Professional E) Multinational Difficulty: Easy AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 35 Copyright © 2017 Pearson Education, Inc. 105) Which of the following is a unique feature of a multinational corporation? A) Owners have unlimited financial liability. B) Owners are taxed like partners. C) It is considered to be a partnership for tax purposes. D) Stock is held by only a few people. E) Stock is traded on the exchanges of several countries. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 106) What is created when a corporation creates a new operation with another firm? A) Divestiture B) Spin-off C) Joint venture D) Merger E) Acquisition Difficulty: Moderate AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 36 Copyright © 2017 Pearson Education, Inc. 107) What should competitors establish when collaborating on a project that might have mutual gain? A) Stock options B) A new Board of Directors C) A strategic alliance D) Institutional investors E) A spin-off Difficulty: Moderate AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 108) What is the advantage of forming a strategic alliance with a competitor or supplier? A) Mutual gain B) Increased shares of stock C) The ability to influence the price of stock D) To legally join the two organizations E) The ability to sell a section of the business but still retain control Difficulty: Moderate AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 109) A limited liability corporation is a hybrid of a publicly held corporation and a partnership. AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 37 Copyright © 2017 Pearson Education, Inc. 110) Corporations generate sales revenues proportionate to their number as compared to other forms of ownership. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 111) Corporations enjoy significant tax benefits when compared to sole proprietorships or partnerships. AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 112) An S corporation has stock that is widely held and available for sale to the general public. AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 113) The board of directors of a corporation reports to the officers of the corporation. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 38 Copyright © 2017 Pearson Education, Inc. 114) An organization's president is usually responsible for the overall performance of the firm. Difficulty: Moderate AACSB: Analytical thinking Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 115) An employee stock ownership plan allows employees to join together and influence corporate managers and how they run the company. AACSB: Analytical thinking Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 116) A joint venture occurs when partners share ownership of a new enterprise. Difficulty: Easy AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 117) Explain limited liability in a corporation. AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 39 Copyright © 2017 Pearson Education, Inc. 118) Explain a tender offer. Difficulty: Moderate AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 119) A corporation must be managed on the principles of corporate governance. Explain what this is. AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 120) Explain the role of a corporation's board of directors. AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 121) Discuss the advantages and disadvantages of corporations. Difficulty: Difficult AACSB: Reflective thinking Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 40 Copyright © 2017 Pearson Education, Inc. 122) Describe the three distinct bodies of corporate governance that are specified in a corporation's bylaws. Difficulty: Difficult AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 123) Explain the difference between mergers and acquisitions, and why they are important forms of corporate strategy. AACSB: Application of knowledge Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership. 124) Discuss the difference among a divestiture, a merger and acquisition, and a spin-off.. Difficulty: Moderate AACSB: Analytical thinking Objective: 3.6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations; explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership.

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